Millions laundered by FBI targets in Calif. Sen. Yee case

Published 4:15 pm, Saturday, April 5, 2014

Reputed San Francisco Chinatown gangster Raymond "Shrimp Boy" Chow and his associates were making money in illegal ways and needed to hide it from federal authorities, so they funneled it into fake business accounts, according to the FBI - the classic definition of money laundering.

Money-laundering charges are at the center of the criminal case filed by federal prosecutors last month against Chow, 54, and 28 other defendants, including now-suspended state Sen. Leland Yee, D-San Francisco, and his fundraiser, former San Francisco school board President Keith Jackson.

In some cases, money laundering is easier to prove than the underlying crime that gives rise to it, said Beth Simmons, a professor of international affairs at Harvard University. "Money laundering might be sort of another angle to try to get at the consequences of illegal activity," she said.

Yee, 65, and Jackson, 49, have each been charged with conspiracy to traffic in firearms without a license and defrauding citizens of honest services. Neither has been charged with money laundering, although Jackson - in a conversation with an undercover agent - quoted Yee as saying there would be an "opportunity to launder the proceeds from the sales of future weapons," according to an FBI affidavit.

Gone straight?

Chow, meanwhile, portrayed himself as a reformed gangster who was on the straight and narrow, the affidavit said.

In a wiretapped conversation, Chow told associates "he stays out of the transactions" and that if one of his acquaintances was caught doing something illegal, "it would be bad for all of them," the affidavit said.

Chow said his defense to any criminal accusation would be that "he doesn't really know what the rest of them were doing," the affidavit said.

But federal officials say Chow knew exactly what was going on.

The affidavit that FBI Special Agent Emmanuel Pascua filed in federal court said Chow and his associates participated in money laundering with the help of an undercover agent known in court records as "UCE 4599," short for undercover employee.

Drug money

Four defendants, with the help of Chow and UCE 4599, laundered $1.5 million in drug proceeds in Georgia, New Jersey and Massachusetts from August to December, according to the FBI. Chow allegedly got a $30,000 cut.

In many instances, the FBI affidavit isn't specific about how the money was allegedly laundered. But the crime often involves "smurfing," or breaking up large amounts of money into smaller chunks to avoid arousing the suspicion of the FBI or Internal Revenue Service.

The smaller amounts of money are then deposited into legitimate bank accounts by numerous people - the smurfs.

Another laundering method is hiding the cash in legal businesses, blending the dirty money with proceeds of, say, a restaurant or casino. Money launderers can also create shell companies that exist solely to "clean" dirty money.

Hiding the source

In both cases, launderers create fake bills or invoices to make it appear as though the money coming into the business is from legitimate sources.

"You might be able to take, let's say, $50,000 and methodically put it through the proceeds of a restaurant," said Steven Gruel, a defense attorney and former federal prosecutor.

"You might even conjure up some phony bills to help support the alleged earnings from that cash. Or you might use a bank," Gruel said. "That's what they did in the '80s in Miami. A lot of the banks were used to launder millions of dollars from the cocaine distributions."

In the Chow case, according to the court affidavit, the FBI itself also supplied money for laundering through an undercover agent. The idea was to bolster the agent's credibility with the investigation's targets by saying the money came from gambling, drug sales and other crimes.

Chow and five of his associates laundered $2.3 million in "purportedly illicit funds" supplied by UCE 4599 from 2011 to 2013, Pascua wrote in the affidavit. UCE 4599 forked over a 10 percent commission to each launderer, the FBI said.

Sting fund

In one of many instances cited by the FBI, UCE 4599 gave $20,000 in cash to 44-year-old George Nieh of San Francisco - one of the defendants - to be laundered and $2,000 in a cash commission, the affidavit said.

Nieh, whom the FBI described as the leader of a local street gang, then allegedly wrote a personal $20,000 check, made payable to a fake business account that UCE 4599 had set up, to disguise the source of the funds.

In such stings, federal prosecutors would have to prove that although the laundered money didn't come from crimes, the defendants thought it did, Weisberg said.

Keeping track

A challenge for prosecutors is to ensure that they differentiate between ill-gotten gains and money derived legally, said Seth Chazin, a defense attorney not involved in the case.

"Often there are legitimate funds that are somehow conflated by the prosecution into allegations of money laundering when, in fact, often the funds alleged to be laundered money are, in fact, legitimate funds," Chazin said.

Attorneys for the accused could also raise entrapment as a "potential viable defense," Chazin said.

But Weisberg said he believed the undercover agents would be deemed "very credible witnesses," and that "entrapment (as a defense) really almost never works, and it's not going to work here."

Defendants with criminal histories like Chow - as opposed to those who have shown "no predisposition toward crime" - will be hard-pressed to argue that they were goaded into laundering money, Weisberg said.

"My view is that this is a case where the law is very simple and the facts may be unclear," he said. "In other words, if the government can prove the facts alleged in this affidavit, I don't see terribly complicated legal issues here."

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